Great Idea! Let's Nationalise The Mobile Telephone Networks

Watching Owen Jones trying to ponder matters economic rather brings to mind Dr. Johnson's comment about watching a woman preacher. It's not that the thing is being done so well it's that it's being done at all. Today he takes to The Guardian to announce that we should nationalise the mobile phone networks for, as he says, they're a natural monopoly after all.

Previously state-owned services are one thing: but what about the mobile phone network? Even the very suggestion is inviting ridicule. But if people are so keen for public ownership of rail, why is the case any weaker for mobile phones? They are a natural monopoly, and the fragmentation of the telecommunications network is inefficient.

Oh dear. Facepalm. That we have Vodafone, Three, O2, T-Mobile and the rest is rather proof that it's not a natural monopoly. That a landline network probably is one is down to the fact that while it's technically possible to have more than one wire to each house it's not economically viable. Anyone trying to build the second network will go bust very quickly indeed. This is not true of mobile technology and the reason that we know it's not true is because we do actually have, in front of our eyes, multiple competing companies in the market. You know, those multiple competing companies that are the proof perfect that mobile telephony is not a natural monopoly?

So I'm afraid that Young Owen has rather failed at this first hurdle of making his economic case. It does get worse of course, I mean this is Jones, on economics, in The Guardian, so of course it gets worse.

If you have tried to deal with the customer service arm of the mobile phone giants, then please do not read on, because you will only relive traumas you would rather forget. After Grace Garland was signed up to EE from her Orange contract, her 4G and internet access all but vanished for several months. Errors at EE's end left her being charged double, and its system believed she had run out of her data allowance, leaving her with no access to crucial work emails. "No one took my concerns seriously," she says. "They told me they had actually subcontracted a lot of their technical support to outside parties who can only be contacted by them by email, making everything slow and ineffectual."

Isn't that just a lovely idea? That the way to make customer service better is to have a state run monopoly managing things? As, just as an example, we had the GPO as the state run monopoly for the landline telephone network and it took three months to get a telephone installed. There's also good academic research out there looking at the rollout of mobile technology across the world. Those countries that had a state owned monopoly, or even just a private monopoly running things, had very much lower market penetration rates than other countries at the same basic economic level but a competitive market. And that's an obvious finding for the great temptation for a monopolist is to restrict supply in order to drive up prices and thus profits. That's what we call monopolistic profits in fact.

But yes, there's more:

Neither are mobile phones themselves triumphs of the private sector, or even close. "It's not far-fetched to suggest nationalisation," says economics professor Mariana Mazzucato, "because these companies aren't the result of some individual entrepreneur in the garage. It was all state-funded from the start." As I write this, I fiddle occasionally with my iPhone: in her hugely influential book The Entrepreneurial State, Mazzucato looks at how its key components, like touchscreen technology, Siri and GPS are the products of public-sector research. That goes for the internet, too – the child of the US military-industrial complex and the work of Sir Tim Berners-Lee at the state-run European research organisation Cern in Geneva.

"It's actually the classic case of economies of scale, or a natural monopoly, and the decision you'd have to make is whether it's one firm or the state running the whole thing," says Mazzucato. "When you chop it up, you lose the benefits of cost and efficiency from having one operator."

When you reach for your Mazzucato you know that you're making an error. Whether or not technologies started out in a government research program has absolutely nothing at all to do with whether an operating network should be government owned or not. Those basic technologies are public goods in the jargon. And one of the reasons that we have government in the first place is so that we can get those public goods. Super, we get investment in scientific knowledge that we wouldn't have without government, that's just lovely for that's one of the reasons that we have government. But to say that this therefore proves that a civil servant should be supplying you with your telephone is simply nuts. It's also entirely ignorant of the great scholar in this area, William Baumol (a perennial Nobel also ran). Who has pointed out in great detail the difference between the invention part and the innovation part. The State can be just as good as the market at invention, the creation of really cool new technologies. But it's terrible compared to the market at innovation, the getting of that new technology into peoples' hands so that they can do cool and interesting new things with it. The Soviet Union built rockets just as good as anything anyone else made but they didn't manage a washing machine that worked.

The case for nationalising mobile phone companies is actually pretty overwhelming. It would mean an integrated network, with masts serving customers on the basis of need, rather than subordinating the needs of users to the needs of shareholders. Profits could be reinvested in research and development, as well as developing effective customer services. Rip-off practices could be eradicated. It doesn't have to be run by a bunch of bureaucrats: consumers could elect representatives on to the management board to make sure the publicly run company is properly accountable. Neither does nationalisation have to be costly: Clement Attlee's postwar Labour government pulled it off by swapping shares for government bonds. So yes, it might sound far-fetched, the sort of proposal that lends itself to endless satire from the triumphalist neoliberal right. But next time you're yelling at your signal-free mobile phone, it might not seem so wacky after all.

And that little knee-jerk line about profits is just wondrous. For the truth about the UK mobile networks is that they sometimes make accounting profits but they very rarely make economic profits. That is, they're not, over time, covering their cost of capital. And it doesn't matter who owns something, if it's not covering its cost of capital then it is being subsidised by the investors, whether those investors be the State or private capitalists. And the reason that they don't make economic profits is because the system was deliberately engineered so that they don't. This was one of the (very few) great achievements of Gordon Brown in fact, setting up the auctions for spectrum so that the Treasury has been reeling in tens of billions of pounds over the years. Make sure that there are sufficient competitors to keep bidding up the price of that spectrum in those auctions.

This is how it should be of course, that spectrum is a natural resource and like all such natural resources the Ricardian Rent should be going to the Treasury. And it's one of those few taxes where we actually want it to be eyewateringly high: we want all of the economic value of that resource to be captured by the State. We're happy for the mobile companies to take a cut in profits of the value they add to the resource but we want the cash for the resource itself to be paid to us all in the form of lower other tax bills.

And it's not just that Jones seems to disregard this point, that the major beneficiary of the current set up in a financial sense is his already beloved State, it's that he seems entirely ignorant of it in the first place.

As to endless satire from the neoliberals: why would I or anyone else of my tribe resort to satire about something that is clearly insane as a result of the plain ignorance of the person making the suggestion?